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Keynes and Hayek: Commonalities and Differences in Business Cycles Theories (2021-2022)


Publication: 10.58367/NECY.ODO.2022.1
Field of study: Economics

Nearly a century after the renown Keynes-Hayek debate, the two economists are still perceived as diametrically opposed. This is certainly not true in the realm of business cycle theory where for a period of time they both employed the Wicksell inspired savings-investment approach. The publication of Keynes’s General Theory obscured these similarities and the IS-LM model disconnected all possible ties between the two cycle theories. However, I argue that Keynes did not succeed in the General Theory to offer a consistent interest rate theory and that his 1937 articles which were meant for further clarification were received even worse than the book itself. If Keynes’s more nihilistic variant of the liquidity preference theory would be replaced which Leijohnhufvud’s Z theory (i.e., the Treatise plus output modifications), Keynes and the Austrians would still have considerable theoretical points in common in the realm of business fluctuations. The two cycle theories would complement, rather than contradict each other.

Keywords: economic cycles; J. M. Keynes; F. A. Hayek; interest rate theory; liquidity preference; the Wicksell connection

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